Monday, February 21, 2011

Donovan And The Progressives

The preferences of progressive Democrats in the legislature – most especially the leaders of the Democratic caucus, Speaker of the House Chris Donovan and President of the Senate Don Williams – are well known. Neither of them was constrained during the administration of Governor Jodi Rell to hide their light under a bushel basket.

Ever since the state income tax was presented to the General Assembly as a fait accompli by former Governor Lowell Weicker, a renegade Republican turned Independent, Democrats in the legislature, led by Mr. Donovan and Mr. Williams, have been agitating for a more progressive income tax. Their agitation hit pay dirt during the sleepy Rell administration when the tax was made progressive over the hearty objections of a much diminished Republican legislative contingent. Republicans argued at the time that revenues already were progressive on the receipt end, since those considered “rich” by Democrats were paying 66 percent of the income tax.

As soon as he touched down as governor, Dannel Malloy, in his present budget, added additional rate steps to the progressive tax ladder. Mr. Donovan thinks that if the bottom rungs of the latter were eliminated and more rungs were added to the top, the state would climb to Heaven more quickly. Those who know him think he will not be satisfied with less than everything and expect a tousle between the Democratic leadership in the General Assembly and Mr. Malloy on the question of getting and spending.

Is there some important difference between Connecticut’s self proclaimed progressive governor and the progressive Democratic caucus in the General Assembly that would lead a disinterested observer to conclude that the present government would be more capable than previous governments of repositioning Connecticut as a viable state?

The usual farce enacted between a progressive leadership in the Democratic dominated General Assembly and a fidgety Republican governor has run so often in Connecticut that even progressive minded academics now have the plot down pat. The replacement of a so called moderate Republican governor with a progressive Democratic governor has introduced a new note of suspenseful uncertainty into the predictable proceedings.

Mr. Malloy’s budget calls for massive tax increases. But, progressives moan, the increases are too broad based. Nearly everyone gets to bite a bullet in Mr. Malloy’s budget. This is, those in the state not infected with the progressive virus might argue, an economically efficient arrangement. Why? Because Connecticut’s treasury, heavily reliant on those making more than $200,000 a year, took a spectacular hit during the present unresolved recession -- precisely because the tax base had become too narrow. It simply is not true, at least in recessions, that “them that got shall get, them that’s not shall lose,” as the old Billie Holiday -- Arthur Herzog Jr. song would have it.

The truth is that the government that gets more from so called “millionaires” during good times gets proportionally less from them when the economy crashes. If rich Paul has been paying the bulk of assessed taxes based on his income, then poor Peter will suffer the loss when Paul’s income is reduced. Indeed, this is why Republicans who have bothered to study Milton Friedman prefer a flat income tax with a negative income tax feature in which taxes reach those that ain’t got their own minus the rake-off taken by the welfare bureaucracy. This year, when Democrats proposed to install the equivalent of Mr. Friedman’s negative income tax – re-dubbed an “earned income tax credit” -- as an add-on feature that would not reduce the welfare middleman, some Republicans winced in pain. Another attempt, they thought, to give the child someone else’s earnings, without giving him the opportunity, as the “God Bless the Child” song recommends, of “getting his own.” Not permitted the chance to get his own, the child will grow to maturity reliant on progressives who only know how to redistribute Paul’s ever diminishing wealth.

The Tax Foundation, a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937, reported in 2008, much before Mr. Malloy’s proposal to make the state’s tax structure even more progressive, that “Connecticut by far has the most progressive distribution of federal income taxes [in the nation]. Taxpayers making under $50,000 a year earned 13 percent of adjusted gross income in the state, but paid only 5 percent of the state’s federal income taxes. On the other end of the spectrum, taxpayers making over $200,000 earned 44 percent of the state’s AGI, but paid 66 percent of the state’ federal income taxes.”

When New York enacted its “millionaire tax” – on non-millionaires making more than $200,000 -- the state’s revenue DECLINED by 9 percent. Then Governor David Paterson, not a conservative by any estimation, explained why: “We increased the income tax for millionaires last year. We projected that we would get $4 billion and we actually got well short of it. Tax the rich, tax the rich. We've done that. We've probably lost jobs and driven people out of the state.”

Mr. Cuomo is not likely to repeat the mistake. But here in Connecticut, progressives, still absurdly claiming the state has a revenue rather than a spending problem, are unwilling to learn from recent history. These lessons, staring every voter in once prosperous Connecticut in the face like the grim reaper, are lost on progressive ideologues who really do think that in an era of diminishing returns wisdom counsels redistribution rather than wealth creation.